New Technology Venture Investments – Innovate in PA

At the start of the legislative session earlier this year, Senate Bill 456 (SB 456) was introduced that would create the Innovate in Pennsylvania Program to provide a new predictable source of funding for early-stage venture capital investment through the sale of deferred tax credits.   This program would help establish new technology-based industries in Pennsylvania while also producing family-sustaining jobs and investing long-term into the Commonwealth.  I was a co-sponsor to SB 456, which essentially became a part of the budget negotiations in the Tax Code.  Although the majority in the House of Representatives drastically reduced the amount of tax credits that will be offered in the coming years, I am pleased such an initiative passed that will help make our state competitive again and invite new companies to our state.  

Typically, the first $500,000 of “seed” capital is the hardest for technology-based start-up companies because they are often considered too risky for traditional bank financing.  Because of its proven track record, it has been found that when an initial Ben Franklin investment is involved for example, private investors become more interested.  The Ben Franklin Technology Development Authority (BFTDA) is a state-sponsored initiative that funds regional technology accelerators, think South Side-based Innovation Works, by selling deferred tax credits to insurance companies. 

Innovate in PA will offer $100 million of deferred premium tax credits to qualified insurance companies that pay the state’s insurance premium tax liability in 2017.  For every $1 of tax credit offered, insurance providers will receive an up-front discount.  The advantage to the Commonwealth is that the state can immediately invest the capital raised through the sale of the deferred tax credits and put the money to work.  Ultimately, investments received from participating insurance companies will be distributed to the Ben Franklin Technology Partners, who will receive half of the proceeds, 45 percent going towards the PA Venture Capital Investment Programs, and the remaining 5 percent towards Life Sciences Greenhouses. 

The creation of Innovate in Pennsylvania will provide a huge boost of funding for these technology-based programs, especially for the Ben Franklin which saw its allocation go from $53 million to $14 million in 2011.  Furthermore, it is believed that passage of this law could put Pennsylvania back into the top three states in terms of early-stage investments.  This program comes at no cost the General Fund because it is expected that the Innovate in Pennsylvania program will generate private sector leverage, employment and tax revenues that will offset the budget impact of the credits at such time they are claimed by insurance companies starting in 2016.  For example, based on its past track record Ben Franklin has been credited with sustaining and bringing hundreds of new ventures to the state with a 3-1 return on investment for state dollars. 

I am very pleased that Innovate in PA was included in the Tax Code during this budget because our state needs more programs that help finance the early stages of new business ventures.  However, I am disappointed that the House majority stripped away nearly half of the $175 million for Innovate in PA that the Senate originally passed.  As the Commonwealth climbs out of the recession, new programs like Innovate in PA need to be created to attract and assist growing industries so that these businesses come and stay in Pennsylvania.